* * *
Recent macro economic data in the US has been very good. In just the past month, retail sales have risen to new all-time highs, new home sales have risen to a new 10 year high and unemployment claims have fallen to more than a 40 year low. Last month, manufacturing notched an annual growth rate of 2.7%, the highest rate in over 3 years.
It would be sensible, therefore, to expect the Federal Reserve to raise its funds rate at its December 13th meeting; in fact, the implied probability of this is now close to 100%. Three further rate hikes are also expected in 2018.
Under this backdrop, investors would logically expect treasury yields to also rise.
That might well be the case, but the path is unlikely to be that straight forward.
Consider, first, that the Fed has already raised its funds rate 4 times in the past 2 years. Treasury yields were lower several weeks later every time. Enlarge any image by clicking on it.